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Posted almost 9 years ago

MASTER LEASE: How to control millions in Real Estate with no money

I was 25 years old and had a handful of rentals. My goal was to buy as many rentals as I could and live off the cash flow. For any of you that have tried this, you know that it almost never works that way. Rentals are a great way to invest for your future, but a very difficult way to replace income. I know this because even though I had several rentals, I was still broke.

Because I was broke and had no income to speak of, I was not able to come up with down payments or qualify for loans. Knowing the career of my dreams was well under way, I had to find ways to make it work. I had to buy more property.

I came across a seller that had a four-plex that he was sick and tired of managing. He tried the professional property
management route and was frustrated with the results. I was able to negotiate a lease on all four units with the right to sublease them out. I promised to cover vacancies and maintenance if I was able to get a monthly lease payment low enough. The deal came together and I did a master lease on that little four-plex, which I still control today. It is not a lot, but I make between $3,000 and $4,000 a year and have the right to buy it at a locked in price when I am ready. The price that I have locked in is about $100,000 under market value. I did this with no money out of my pocket and no bank loans.

The master lease is typically used on much larger commercial properties than my little four-plex. However; it can be a tool for almost any type of property and has some tremendous benefits including:

  • It is a great way to get in with little to no money and very little risk.
  • It is a great way to benefit from rents without actually owning the building.
  • It is easy to negotiate and easy to understand.
  • It is typically a great alternative with the ability to benefit everyone involved.

If you do decide to get into master leases as an investing strategy, I would recommend you always try to get an option to buy the property with the deal. That way you can capture the appreciation of the building you are managing, but take no risk if it loses value. Once you have an option, you will have the right to buy the building to keep, buy it to resell or even assign your rights to another investor for a fee.

Right now is a great time to be utilizing this strategy because values and rents are on the rise. I just went through all my leases and found that over half of my properties are rented below market. I have been frantically trying to get my rents up to keep up with the market. Many owners lose track of market rents. They are more concerned with other things to keep up on it. I have found this to be especially true with investors that are ready to retire. This type of owner is the perfect prospect for the master lease because you can offer them what they are currently getting and take away all the hassle of managing the property. That is a good deal for them. Once you have control, you can raise the rents, increase the value and start enjoying the cash flow, and that is a good deal for you!



Comments (6)

  1. Johnathan, You should do what kevin says, I like sub2 but I got burned on a house but if I would have had a lease with option they could not do anything, now I am changing to contract for deed and L/O and have a deed to you somewhere, attorney, escrow but have one done!


  2. Hey Jonathan,

    His attorney suggested the lease option?That actually amazes me.It has been my experience that attorney’s kill creative deals so to have him suggest one is great!(Sorry if I just offended any attorney reading this J )

    If you have an option you are secure.The option is a unilateral agreement where you have the right to buy but he MUST sell.If you structure it correctly you will have a locked in price so any appreciation would be yours to keep.There are several ways to secure your option so that he or his estate would be forced to sell.I have escrowed the deed with an escrow company before but what has actually worked the best is recorded a Deed of Trust or Mortgage.Maybe you can get his attorney to draft this for you and you can run it by your attorney to save you a little on attorney fees.As a last resort you can record your agreement which would cloud the title and show up in a title search. To do this you need the legal description on the agreement and his signature must be notarized.

    If the numbers work I would jump on this!


  3. HI Kevin,

    I've considered implementing this strategy.  Someone I know has two triplexes and wants out.  I have approached him with subject to but his "attorney" suggested a lease to purchase.  I may consider something like this as it would be like the master lease.  My only thoughts are what happens if he passes away and what if he decides not to sell even though there is something in writing.  With a subject to you have title so all that it is done already.  Also on the repair side why would I continue to invest in the property if there may be a chace he may back out of the option to sell?  Curious to know you thoughts on these questions.


  4. Hey Jeff,

    This specific one was purchased from another investor.He was part time and was sick of managing it.He posted in a discussion forum online, much like BiggerPockets.I made contact and then met him at the property. We ended up doing a lot of business together.My price on it is $425k and I am finally getting ready to exercise my option.I really think it is worth about $525k but the lender just did and appraisal and it came in at $600k.

    I am not sure how to answer the question about how to find this.I purchased a home study course and did everything the course said I should do.I was driving around looking for small apartments to buy calling everyone that I could.I was spending time online and looking at newspaper ads.I think there are things that don’t work well but I did them anyway.I really believe if you are committed to finding a deal and you put it out there that you want one (by putting in the effort) the deal will come.The tricky part is to know where the deal will come from.You just need to believe it will come and not worry about where, and it will come.

    I probably made you more confused but I hope this was helpful


  5. Congratulations. Can you post some more specific details about your master lease? Where did you find it (attorney)? How much did it cost? How would did you find the deal? How can others get a deal like this and execute it? 

    Thanks, 


  6. very cool